Cercado, April Rose M. Prof.

Ervin Ray Fernandez

BSA 3-A Auditing Problem

PROBLEM 2
1. Adjusted balance of retained earning at the end of 2018, 2020 and 2021

2018 2019 2020 2021

Beginning Balance 0 854,500 1,162,950 806, 700
Add: Gain on retirement of preference share 0 518,100 (303,000) (316,800)
Less: Dividend paid 0 0 96,000 0
(Adjustment b) 0 (210,000) (150,000) (125,000)
Ending Balance 854,000 1,162,950 806,700 364,900

2. Adjusted net income for the year ended December 31, 2019 and 2021

2018 2019 2020 2021

Net Income 465,000 (307,500) (248,250)
Adjustments:
Accrued Income 8,400 9,300 11,700
Accrued Expense (9,300) (13,050) (14,250)
Depreciation Expense (33,750) (135,000)
Legal Fees to effect the ownership 45,000
Understatement of 2020 ending Inventory 51,000
Adjustment of 2021 (3,000)
Understatement of 2019 ending Inventory 54,000
Understatement of 2020 beginning Inventory (54,000)
Understatement of 2021 ending Inventory 72,000
Adjusted Net Income/ Loss 518,000 (303,000)
(316,800)
PROBLEM 3
Requirements: Compute the following:
1. Restated net income for 2020 as result of the change in policy.

Net Income (2019) 900,000

Ending Inventory (165,000 – 150,000) 15,000
Restated Net Income 915,000

Net Income (2020) 845,000

Ending Inventory (156,000 – 145,000) 11,000
Beginning Inventory (15,000)
Restated Net Income 841,000

Net Income (2021) 929,000

Ending Inventory 14,000
Beginning Inventory (11,000)
Restated Net Income 932,000
 2. Adjusted net income for 2020 as result of the change in policy.

Restated Net Income (2019) 915,000

Restated Net Income (2020) 841,000
Restated Net Income (2021) 932,000
Adjusted Net Income 2,688,000

3. Retroactive adjustment to the Retained earnings beginning balance of 2021 as a result of this change

Ending Retained Earnings (FIFO) 1,745,000

Ending Retained Earnings (FIFO) 1,756,000
Beginning Retained Earnings (11,000)
PROBLEM 4
2018
Straight-line method
Year Beg. Period Value Dep. Exp. Accum. Dep. End BV
1 50,000 9,000 9,000 41,000
2 41,000 9,000 18,000 32,000
Salvage Value - 50,000 x 10% = 5,000
Dep. Exp per year = (50,000-5,000)/5 years = 9,000
Sum-of-years digit method
Year Dep. Base Rem. Life Dep. Fraction Dep. Exp. Book Value
3 30,000 5 5/15 10,000 22,000
Salvage Value = 50,000 x 4% = 2,000
Double Declining Method
Year Beg. Period Value Dep. Rate Dep. Exp. End BV Accum. Dep.
3 32,000 40% 12,800 19,200 12,800
Salvage Value = 50,000 x 4% = 2,000

2019
Straight-line method
Year Beg. Period Value Dep. Exp. Accum. Dep. End BV
1 40,000 7,200 7,200 32,800
Salvage Value - 40,000 x 10% = 4,000
Dep. Exp per year = (40,000-4,000)/5 years = 7,200

Sum-of-years digit method

 Year Dep. Base Rem. Life Dep. Fraction Dep. Exp. Book Value
4 31,200 6 6/21 8,914 23,886
Salvage Value = 40,000 x 4% = 1,600

Double Declining Method

Year Beg. Period Value Dep. Rate Dep. Exp. End BV Accum. Dep.
3 32,800 33.33% 10,933 21,867 10,933
Salvage Value = 40,000 x 4% = 1,600

Requirement 1: Depreciation Expense for 2019 = 9,000 + 7,200 = 16,200 Depreciation Exp. (2019)
Depreciation Expense for 2020 = 10,000 + 8,914 = 18,914 Depreciation Exp. (2020)
Requirement 2: Depreciation Expense for 2020 = 12,800 + 10,933 = 23,733 Depreciation Exp. (2019)

PROBLEM 5
Requirements: Compute for the following:
1. Gross Sales for the year

Cash Sales 1,400,000

Accounts Receivable, end 140,000
Notes Receivable- Trade Outstanding, end 90,000
Sales Discount 40,000
Sales Return- Credit memos 25,000
Sales Return- Cash 5,000
Accounts Write-Off 30,000
Total 1,730,000
Less:
Account Receivable, beg. 100,000
Notes Receivable- Trade Outstanding, beg 80,000
Cash Recoveries- Write-Off 10,000
Gross Sales 1,540,000

2. Net Sales for the year

Gross Sales 1,540,000

Less:
Sales Discount 40,000
Sales Return- Credit memos 25,000
Sales Return- Cash 5,000
Net Sales 1,470,000

3. Uncollectible accounts were P 21,000 and P35,000 at the beginning and at the end of the year

Account Write-off 30,000

Balance, end 35,000 65,000
 Less:
Balance, beg. 21,000
Recoveries 10,000 31,000
Bad Debts Expense 34,000

PROBLEM 6
Requirement: Compute for the following under the accrual method.
1. Gross purchase for the year

Cash 1,250,000
Purchases on Account
Accounts Payable, end 108,000
Notes Payable- Trade, end 42,000
Purchase Discounts 45,000
Purchase Return- Credit Memos 55,000
Purchase Return- Cash 25,000
Total 275,000
Less;
Accounts Payable, beg. 75,000
Notes Payable-Trade, beg. 57,000 143,000
Total Purchase 1,393,000

2. Cost of Goods Sold for the year

Merchandise Inventories, beg. 189,000

Purchases 1,393,000
Less:
Merchandise Inventories 243,000
Cost of Goods Sold 1,339,000